Economic Growth vs Economic Development – PPC Shift and ReallocationSL
Global EconomicsThis diagram illustrates the difference between economic growth and economic development using production possibility curves (PPCs). Economic development can occur through a reallocation of resources along an existing PPC, while economic growth is represented by an outward shift of the PPC due to increased productive capacity.
Curves and elements
- ppc1
- PPC₁: The initial production possibility curve showing maximum output combinations with existing resources and technology.
- ppc2
- PPC₂: The outward-shifted production possibility curve showing increased productive capacity due to economic growth.
- development point
- Point on PPC₁ with more teaching material and fewer defence goods: Represents economic development without growth.
- growth point
- Point on PPC₁ with more defence goods: Represents growth in output composition without development benefits.
- growth development point
- Point on PPC₂ with more of both goods: Represents both economic growth and economic development.
Key explanations
- 1
The initial production possibility curve (PPC₁) shows the maximum combination of defence goods and teaching material that the economy can produce with existing resources and technology.
- 2
A movement along PPC₁ from the initial point toward more teaching material (blue point) represents economic development without growth, as resources are reallocated toward goods that may improve welfare without increasing total capacity.
- 3
A movement along PPC₁ toward more defence goods (upper red point) represents economic growth in output composition without development, since production shifts toward goods that may not improve general living standards.
- 4
The outward shift from PPC₁ to PPC₂ represents economic growth, caused by factors such as technological progress, increased resources, improved human capital, or productivity gains.
- 5
The movement to the point on PPC₂ (purple point) shows both economic growth and development, since the economy can now produce more of both goods compared to the initial situation.
- 6
The diagram highlights that growth and development are related but distinct concepts: growth increases productive capacity, while development focuses on improving welfare and living standards.
Example exam question
Using a PPC diagram, explain how economic growth differs from economic development.
Show example answer
Economic growth refers to an increase in an economy’s productive capacity, shown by an outward shift of the PPC. Economic development refers to improvements in welfare and living standards, which can occur either through growth or through reallocating resources toward goods that benefit society more. In the diagram, movement along PPC₁ represents development without growth, while the shift to PPC₂ represents growth.
